Investors Give Element 25 Limited (ASX:E25) Shares A 30% Hiding

To the annoyance of some shareholders, Element 25 Limited (ASX:E25) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

Since its price has dipped substantially, Element 25 may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.2x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 93.1x and even P/S higher than 458x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Element 25

How Element 25 Has Been Performing

Recent times have been quite advantageous for Element 25 as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Element 25 will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Element 25 will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Element 25?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Element 25's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 59%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 58% shows it's noticeably more attractive.

With this in mind, we find it intriguing that Element 25's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Element 25's P/S Mean For Investors?

Element 25's P/S looks about as weak as its stock price lately. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see Element 25 currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Element 25 you should be aware of, and 1 of them is a bit unpleasant.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.